Federal Court Rules that Hospital Settlement Does Not Relieve Medicare of its Payment Obligations

On May 21, 2012, the U.S. District Court for the Eastern District of Louisiana ruled that a malpractice settlement paid to the family of a deceased Medicare beneficiary did not constitute a “primary plan” for purposes of the Medicare Secondary Payor (MSP) statute. Sorrell v. Lakeview Regional Medical Center, et al., Civ. Action No. 11-2084 (E.D. La. (May 21, 2012). As a result, the Medicare Program was not permitted to recover conditional primary payment amounts that it had made on the beneficiary’s behalf.

Under the MSP statute, the Medicare program is not ultimately responsible for paying for services rendered to a beneficiary when payment is made under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance. 42 U.S.C. § 1395y(b)(2). In other words, Medicare is “secondary” to primary plans/payors. In the Sorrell case, Medicare made conditional payment for services rendered to the beneficiary prior to her death. The beneficiary’s family had sued the hospital, alleging that the hospital had acted negligently, and settled the case for $15,000. CMS then sought recovery from the beneficiary’s family of roughly $10,000 in payments it had made for services rendered to the beneficiary prior to her death. CMS argued that the settlement amount constituted payment from a primary “self-insured plan” under the MSP statute, and that CMS was therefore entitled to recoup the conditional payment it had made.

The court denied CMS’s motion for summary judgment, ruling that “CMS fails to establish that Lakeview Regional Medical Center’s $15,000 settlement satisfies the definition of a primary plan.” In issuing this ruling, the court relied on a 2003 Fifth Circuit case, Thompson v. Goetzmann, 337 F.3d 489, in which the court held that the MSP statute “plainly does not apply automatically to alleged tortfeasors…who settle with plaintiffs.”

The court’s ruling in Sorrell is arguably inconsistent with the operation of the reporting obligations imposed by section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), which require that settlements like the one reached in the Sorrell case be reported to CMS.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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